Charts let you see movements and common patterns of exchange rate. All of which have bearing in forecasting future moves of exchange rates.
Forex charts also display the exchange rates from which the market formerly reversed to disadvantage. Sellers exist at these resistance levels or just above them, since resistance is there to the upward moves.
There are main types of charts in forex trading which will be very helpful especially if you are new and are still learning. Here is the list and an overview on how to read them.
Every time the market ticks or moves, data points will be drawn with this type of forex chart, which means that no time axis is fixed. Thus, it lets a short-term trader pay attention to price action. Resistance, support and trends are all well existent on tick charts.
For instance, you want to check on a tick chart on a specific platform. You just double-click the appropriate currency pair in the app window. A pop-up box will appear on the right side which will let you enter orders or trades, aside from the displayed tick chart on the left. Tick charts are red lines that display the offers and a blue one to show the market’s bid section.
Point and Figure Charts:
This is one of the famous charts which professional forex traders usually use. The point and figure chart lets them screen the moves per exchange rate, recognize clear resistance and support levels and trade certain patterns.
Similar with tick charts, this also doesn’t have fixed time intervals on the x-axis, which allows the trader to just purely focus on the movement of exchange rates.
Point and figure charts have a parameter which is called reversal which typically positions at three boxes. This indicates that there is a required minimum of three-box move before the current column switches to using the O from using the X, or vice versa. The graph also increases on column to the right whenever there is an occurrence of reversal.
This type of chart links a set of annotations of single exchange rate with a line for each time period. Frequently, these charts utilize closing prices, though they can be drawn low, high or opening prices.
Line charts can be used to recognize overall trends and some other large-scale patterns since these charts give a basic picture of exchange rate actions.
Bar charts display the open and close, and high and low for each period of time which forms a bar together. A small and horizontal dash to the left indicates an open level, while a horizontal dash going to left implies closing level. While, a connected vertical line indicates the high and the low.
These bars are not linked to each other unlike the data points which make a line and tick charts. Yet, they offer much information. Bar charts are the same with line charts which have fixed breaks on the x-axis.
These are inventions of Japanese which offer even further information compared to bar charts, since the body of the candle’s color indicates if the market fell or rose during a certain period of time.
For instance, a bullish or a rising candle is indicated by a white body, whereas, a bearish candle is represented by a black body.
There are what we call wicks which are vertical lines found between the open and low, and between high and close. The length and shortness of wicks are important in forecasting succeeding market behavior.
The ability to read main forex charts is an advantage especially if you are a beginner in forex trading.